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The 'basic economic problem' is a term used in economic theory. It asserts that there are limited resources for infinite human wants or scarcity. It involves what goods and services an economy should produce, for example should the emphasis be on public services, housing, agriculture or manufacturing. It also determines how the goods and services should be produced, capital or labour intensive and the efficiency.
There are four reasons why wants and needs are virtually unlimited:
# Goods eventually wear out and need to be replaced.
# New or improved products become available.
# People get fed up with what they already own.
# With an increase in salary the expectations of the consumer rise.

Contents

Limited resources

The Economic Problem

Limited resources

''Commodities'' (goods and services) are created by utilisation of ''resources''. The resources shown below are sometimes called factors of production.
In types of commodity a free good is available without the use of resources. For example, there is zero opportunity cost for air above ground. An economic good is a commodity in limited supply. However the difference between a free good and an economic good alters with the opinion of the economist. For example within the Amazon Rainforest rainwater is not considered as scarce because it is in mass abundance, but ''fresh water'' is considered as scarce because it is hard to come by.
Expenditure on producer or capital goods is called investment.

The Economic Problem

The economic problem refers to the scarcity of commodities. There is only a limited amount of resources available to produce the unlimited amount of goods and services we desire.
Society has to decide which commodities to make. For example, do we make missiles or hospitals? We have to decide how to make those commodities. Do we employ robot arms or workers? Who is going to use the goods that are eventually made?